December 3, 2025 • 55 mins
In this episode, Ken Lucci sits down with Natalie Beane, an SBA and business-lending expert who helps small and mid-sized companies secure the capital they need to operate, grow, and survive challenging markets.
Natalie breaks down how SBA loans really work, the differences between traditional banking and government-backed financing, and what transportation operators can do today to make themselves lender-ready. She explains why clean financials matter, how banks evaluate risk, the biggest reasons loan applications get denied, and the operational habits that signal stability to underwriters.
Whether you're growing, rebuilding, or simply future-proofing your company, Natalie’s insights are essential listening.
CHAPTERS:
00:00 Welcome
01:47 Background
03:30 The Tail That Wags The Dog
04:50 Types of SBA Loans
06:26 What are SBA Loans Used for?
08:14 The Importance of Financial Reporting Documents
11:54 SBA for Real Estate
15:33 SBAs to Buy Businesses
23:40 SBA Myths
33:01 Promissory Notes
36:37 Sellers Who Want it All
41:44 Cash Flow
46:25 How To Prepare a Buyer
48:23 Owners and W2s
50:29 The SBA Provider Process
Connect with Natalie: https://www.linkedin.com/in/natalie-beane-8a2972b/
Learn more about Provide: https://www.getprovide.com/
At Driving Transactions, Ken Lucci and his team offer financial analysis, KPI reviews, for specific purposes like improving profitability, enhancing the value of the enterprise business planning and buying and selling companies. So if you have any of those needs, please give us a call or check us out at www.drivingtransactions.com.
Pax Training is your all in one solution designed to elevate your team's skills, boost passenger satisfaction, and keep your business ahead of the curve. Learn more at www.paxtraining.com/gtp
Connect with Kenneth Lucci, Principle Analyst at Driving Transactions:
https://www.drivingtransactions.com/
Connect with James Blain, President at PAX Training:
https://paxtraining.com/
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ken Lucci (00:30):
And good afternoon.
I would say to the studioaudience, but we don't have a
studio audience.
Good afternoon everybody.
This is the GroundTransportation Podcast.
My name is Ken Lucci fromDriving Transactions.
Um, and I usually run thispodcast with my lovely and
talented, partner in crime,James Blaine from PAXs Training.
(00:52):
Unfortunately, he is out.
Training chauffeurs and CDLdrivers somewhere around the
industry.
So I am blessed today to have a,guest, to interview and I am
really pleased to, to introduceyou to Natalie Bean from provide
website is get provide.com, andthey are an SBA lender.
(01:16):
So Natalie Bean.
Welcome, welcome, welcome.
thanks for agreeing to do this.
I, I think it'll be fun.
Natalie Beane (01:23):
Me too.
I'm happy to be here.
Thanks for the invitation.
Ken Lucci (01:26):
So you and I have spoken, I want to bring as many
of my clients and many businessowners information on how to get
an SBA loan.
And you've been so open insharing information, with me.
Give me an idea first, talkabout your background and then
tell us about provide,
Natalie Beane (01:47):
sure.
So, uh, I've been doing SBAlending for about 15 years, and,
currently I'm working forProvide, which is the small
business, arm or division ofFifth Third Bank.
And.
Among other things provide, doesall of the SBA backed lending.
our sort of history, uh, on theprovide side was as a FinTech,
(02:10):
out in San Francisco providingpractice specialized loans and
healthcare.
And, fifth Third was a, was afunding partner of ours and they
really liked the way we usetechnology to enable.
Actually more human contact inthe lending process.
And so back in 2021, fifth Thirdacquired us.
And since then it's just beenshifting focus, um, within the
(02:35):
small business piece of the bankover into the provide model.
And so today, uh, providersresponsible for doing all the
SBA loans for entrepreneurscoast to coast, And my part of
the process within the SBA spaceis on the front end, working
with entrepreneurs to help them,uh, assess whether they're ready
(02:56):
for an SBA loan to assesswhether they're a good credit
fit.
Um, for the bank.
Ken Lucci (03:02):
So Fifth Third is one of the largest banks out there,
right?
Natalie Beane (03:07):
Yeah, it is.
Ken Lucci (03:08):
Pretty big.
Natalie Beane (03:09):
It's.
right now I think it's a 220 ishbillion dollar bank.
Uh, we recently announced, amerger or depending on how you
look at it, an acquisition ofComerica Bank that's slated for
Q1 next year, which will bump usup into, into the top 15, I
think.
So we'll be up to about a$300,$300 billion bank.
Yeah.
Ken Lucci (03:30):
Well, what intrigued me when you and I first spoke is
Fifth Third Bot provide, but nowyou are really the tail that
wags the dog, meaning youprovide, does all of the SBA
work.
Primarily the SBA work withinFifth Third.
They didn't absorb you and say,okay guys, we got this.
(03:53):
They basically said, run withSBA, correct?
Natalie Beane (03:57):
Yes, that is correct.
Um, fifth, third had always doneSVA, but in a sort of, uh,
spread out, brick and mortarbased type model.
Yep.
And so after seeing, the wayprovide process, loans for
entrepreneurs in the healthcarespace, they just decided that
rather than try to absorb uslike you might expect, uh, they
(04:18):
wanted us to sort of take thelead and.
Adapt our model to focus in theSPA space for the whole bank.
Ken Lucci (04:26):
You know, I gotta give him credit because most,
large acquirers.
Don't take best practice fromthe companies they've purchased.
They basically try to infuse theway they do business onto the
acquired company.
So that's kudos to the, to theexecutive team at Fifth Third.
You know, they bought a greatasset and they've expanded it.
(04:48):
So talk to us about.
The types of SBA loans and whatthey're used for.
What are the different types ofSBA loans that, you know, our
audience is largely passengertransportation companies from
non-emergency medical companies,chare limousine companies, and
then we have large motor coachcompanies that listen as well.
(05:11):
So talk to us about thedifferent types of SBA loans
that may be applicable.
Natalie Beane (05:17):
Sure.
well, I'd say there are threesort of buckets.
Um, one is the SBA seven.
A loan program, which has thebroadest.
Possible uses of proceeds and,and I would argue might be the
most commonly applicable in, inyour space.
basically you any businesspurpose, is eligible use of
funds under that program, withterms up to 25 years.
(05:39):
So that's a seven a program.
Um.
the next sort of bucket would bean SBA 5 0 4 program, which is
highly specialized for realestate acquisition and
potentially heavy equipment withlong, useful life.
that program.
Is not all funded through directbank lending.
In fact, uh, the way the seven aprogram is.
(06:02):
Um, so it's, it's, it's a littlemore, it's a lot more
specialized, you could say.
Um, the, the third bucket wouldjust be various lines of credit
programs.
Um, there is an express line ofcredit that in my experience, we
will often use as a companionproduct to a term loan when it
makes sense in a given industry.
And there are some specializedfor different.
(06:24):
business verticals out there,
Ken Lucci (06:26):
So give me an idea, if I'm an existing business,
what do existing businesses use?
SBA loans for most?
If I'm going to use an SBA loanjust to for expansion, what do
you look for?
You're looking for businessplans.
You're gonna be certainlylooking for use of.
(06:48):
An explanation of use of capitalbeyond I want to grow my
business.
What do you look for?
If I wanna take an SBA loan outto expand my existing business?
Natalie Beane (06:59):
I think the number one thing you've already
kind of touched on, and that iswe're gonna ask more questions
than just you wanna expand.
We wanna understand how and sowe do this.
In large part to make sure it'sa well thought out, thought out
plan, but also, um, to decidewhich buckets of fund uses
things fall into.
So you can use it to buyequipment.
(07:20):
inclusive of, uh, rolling stock,equipment necessary to support
expansion.
operating capital, workingcapital to support, say a
marketing initiative or hiring.
I will say within the workingcapital bucket.
That is one area where SBA justdoesn't want us sort of handing
out big chunks of cash.
You really, you've really gottahave sort of a well thought out
(07:41):
plan.
Uh, but you can also use, SBAfunds to acquire real estate.
So if you're, you know, lookingto build a depot or expand a
depot or something like that,you can use the money for that.
Another reason we'll use moneythat kind of helps to expand is
to consolidate debt.
that exists already on thebalance sheet.
It's gotta make sense.
If we can imp improve terms andtherefore payments and free up
(08:04):
some cash flow.
sometimes just the act of doingthat, as you've no doubt seen,
can actually free people up tosort of expand organically
without additional cashinfusion.
Mm-hmm.
Ken Lucci (08:14):
right.
And you know, this is a leadingquestion because we do financial
analysis and we sell a coursethat teaches people how to
create, uh, cost of goods,financial statements, and
monthly financial statements.
How important is demonstrating.
Uh, exceptional finance,financial performance.
(08:35):
And how important are thefinancial reporting documents of
the business to get a loan?
Natalie Beane (08:41):
It couldn't be more important.
I'd say the likelihood ofapproval and the speed with
which you can receive anapproval and the smoothness of
the act of receiving anapproval.
All of these things are directlytied back to the quality of the
financial package you're able toput together.
know, in this space, most SBAlenders are accustomed to
dealing with folks who are,let's say.
(09:03):
Not your customers, so maybe notas ready.
So we're used, we, you know, weare used to holding hands and
helping people along, but thefact is it's not our primary
focus.
And so you may be a verybankable, uh, business, but if
you can't show that you'rebankable, it may not matter.
You know, you may not get theyes.
And if you do get the yes, uh,you may not get the best terms
because you don't have the mostcompelling package.
(09:25):
Um, uh, so I, I'd say it justcould not be more important.
Ken Lucci (09:29):
Well, it, it's, um, interesting to me.
Let's, let's step back.
One step.
Let's, if I'm gonna be buyingequipment, rolling stock.
for the audience out there, itdoesn't make sense to go to the
SBA to buy SUVs or vans becauseof the, there's not enough
useful life.
But if I had a compelling caseas a chauffeur company that's
(09:51):
got a long track record in theregion, I've been very
(10:34):
profitable and I've got a greatfinancial package.
A, you know, we talked a littlebit about motor coaches, 56
passenger motor coaches beingtypically a 10 year vehicle.
Does that make sense for an SBAloan?
Natalie Beane (10:49):
It can, uh, the only time I ever see that
creating challenges is if folksare trying to buy those on, in a
sec, a liquid secondary market,and they can't.
They need to buy it quickly.
They don't have time to line upall of the financial documents
and get things in order to beable to fund in a timely
fashion.
But aside from that, yeah, aslong as the useful life is in
(11:13):
that 10 year range, it does makesense because that is, the
maximum loan trend we can offeron a non-real estate loan.
And, so yeah, it, it, it is areasonable way to use an SBA
loan.
Ken Lucci (11:25):
We've worked with several large chauffeur
companies.
You know, the, the chauffeurspace is much like the
restaurant business and you, yougo from like the local diner.
To, to, uh, a fairly decentsized family owned restaurant to
maybe a local regional chain.
The average chare company outthere, you know, can be between
(11:47):
3 million and, and, and 5million is what our smaller
clients are.
But we've worked with severalcompanies, the seven to 10
million range who've wanted togo out and buy motor coaches,
and they wanted to get into thatspace and.
Which, which to just describeit, it's almost like going from
(12:08):
propeller planes to the jetplane, and to me it makes.
I don't know how people buy.
It's a 500,$600,000 asset, howyou possibly buy that without a
business plan.
So I would encourage anybody inthe audience who's thinking
about pivoting into largeequipment it's not for the faint
(12:28):
of heart, and you have to befinancially capable, uh, across
the board.
so the SBA seven A, uh, let'stalk about it for buying real
estate.
I'm gonna set this up.
I'm a small business chauffeur,uh, company and I've been
leasing, from someone and payingsizable rent, but now I wanna
buy a building.
(12:49):
does provide think is a goodinvestment in that kind of a
circumstance?
I'm gonna be my own landlord.
I'm gonna be paying, my businessis gonna be paying the mortgage.
So talk about that as a, as a, agood use of the SBA.
Natalie Beane (13:03):
Yeah, absolutely.
Um, so the first thing we'lllook at is.
You know, has the business beenaround long enough for us to be
able to assess on historicalbasis whether they could afford,
could have afforded to pay theproposed loan?
And I mean, a good gut check ofcourse, is how much rent were
you paying and what's the debtservice on a 25 year term?
(13:24):
Um, so, you know, that's justkind of table stakes.
But, or, and we also.
Wanna make sure that thelocation of the property is
gonna make sense.
You know, is it, is it nearenough?
By that, it doesn't require afundamental reconsideration of
the way the business is beingrun.
Um, it that there's that.
(13:44):
Um, and then beyond that, we'rejust looking at is the, is the
property in good condition?
Does it need a new roof?
You know, does it, is itproperly zoned?
Will, are you buying an amountof land that is sensible for the
business?
Um.
You know, this doesn't happenvery often, but there are times
when a seller owns a large plotof land and, and a prospective
(14:06):
borrower for us is looking for aportion of it, but can't buy
only a portion of it.
And so, you know, with SBA, wehave to think through, is that
an investment in part or not?
Um, that's not very frequent.
It's just something we kind ofhave to keep our eyes on to make
sure.
Um, otherwise it's just doesn'tmake financial sense and, and.
I guess related to that, if it'sa company in growth mode, how
(14:28):
much runway will someone have,in the new space?
Is it big enough to absorbwhatever that growth trajectory
is?
Ken Lucci (14:34):
in our case, it's usually they need a par bigger
parking lot, right?
They need, uh, they need agarage for maintenance and to do
in-house maintenance.
So when we talk to our, mostsuccessful sellers, people, you
know, of the, I don't know whatthe number is now.
It's not over 40, but probablyabout 37 companies that we've
sold.
The most successful companieswe've sold have been operating,
(15:00):
they were operating entities for15, 20 years, and they bought
their own, they bought theirreal estate.
They o, they were operating froma building they own, and my
reasoning for really wanting to.
Encourage operators that havegot a good five year track
record of profitability and agood track record of financial
(15:20):
stability and, and great cashflow and great liquidity to buy
is because it is creation,especially, you know, you're a
private business owner.
It's creation of, of additionalwealth.
Owning the real estate and beingyour own landlord there's quite
a few benefits to it.
So I encourage every operatorout there to, In our case, we
(15:42):
help try to help people get onthat road to profitability.
It should be part of your plan.
I mean, unless you're inManhattan, right?
Tough to buy real estate inManhattan.
talk, talk to us because youknow, we see, we see there's a
lot of m and a going on in thisspace.
We see a lot of listen in smallbusiness in general.
(16:03):
I mean the generational turnoverof the, the hundreds of
thousands of small businessesthat their owners are getting
ready to retire.
And I think over the next 10years they said it's the most
transfer of, of, of wealth, ofsmall business transactions in
the history of the country.
So talk to us about using SBAloans to buy.
(16:28):
you know, I'm an operator and Iwanna buy another operator.
Talk to us about that.
Um, and what do you look for tofund.
Natalie Beane (16:38):
Well, when we're looking at an acquisition, there
are two for us to really.
Key considerations and then alot of sort of secondary ones.
the first consideration is doesthe business have historical
financial performance to suggestthat it can support the value
and the debt service for theloan?
Naturally, we wanna see that thebuyer is qualified and knows how
(17:00):
to run the business.
So, you know, that can bedocumented in a variety of ways
if they're already operating abusiness.
That's pretty straightforward.
the other piece of it is thepersonal financial side of the
equation.
And I, I think that is an areawhere some entrepreneurs out
there aren't really thinkingabout how that impacts things.
even if the business is.
(17:21):
Is a solid performing businessand, you know, appears to be
capable of supporting theproposed debt.
If you have, a buyer whosepersonal budget is extensive and
they don't have outside sourceof income, you know, that's
gonna damage the ability of, youknow, we're gonna have to look
to the business, not just tosupport the debt, to acquire it,
but also to support the personalbudget of the buyer.
(17:43):
So the interplay of the personalfinancial scenario with.
The profitability of thebusiness is really key.
And then beyond that, it's just,a lot of the same things you
would think of are there, isthere deferred maintenance?
is there accumulated capitalexpenditure required, that
historical financials don'tshow?
are they inflated in that way?
So it, it's kind of digging intothe numbers to make sure that.
(18:06):
A buyer is going to be set upfor success.
We also wanna make sure weunderstand the working capital
needs because especiallydepending on how well say a
fleet has been maintained or howwell you know a building has
been maintained, we wanna makesure there's enough money to
true that up when someoneacquires.
But also to be poised for growthand to be poised to cover fixed
(18:27):
operating expenses.
you know, while establishingthemselves as new owners.
Ken Lucci (18:31):
So let's put that in limo ease for the audience.
If you are looking to, if first,and for first and foremost, is
it, it, it's true that thebuyer, the the buyer's financial
performance of their, of, let'sjust say they're an operator
now, the host bi, the hostbusiness, right?
The buyer's foundationalbusiness has gotta be on a firm
(18:54):
financial, profitable footing onits own.
Natalie Beane (18:57):
Yes.
Ken Lucci (18:58):
So you, so, so for everybody in the audience, don't
go out to try to acquire abusiness to solve a problem that
you have.
In other words, if you are notprofitable, just adding another
business is not gonna help you,right?
In many cases, I've seen it sinkpeople because they're just not
ready, right?
So let's start with that.
(19:18):
So the buyer's businessfinancials need to be impeccable
in an order with a great historyof profitability.
Cash flow and the businessliquidity should be good.
and what she's saying, whatNatalie is saying is, your host
fleet, your existing fleet,better not be on its last leg
(19:39):
because I'm not gonna lend youmoney to buy another business
because you, primary assets arealready over their, useful life.
At the same time, if you'regoing out to buy an operator's
company.
What she's saying is if thatcompany has a disgustingly old
fleet or an old fleet, right?
(20:00):
I, I use that term, an oldfleet, and it's at the end of
(21:09):
its useful life, you better bestealing that business because
the bank does not want you tohave to buy the business and
then next year go out and spenda million dollars on, on fleet.
So all things being equal.
The buyer's business, financialposition, asset use, asset
(21:31):
value, remaining useful.
Life is critical as well as thesellers?
Correct.
Okay.
Natalie Beane (21:38):
absolutely.
Ken Lucci (21:39):
and the buyer's personal credit.
The personal, balance sheet ofthe person buying the business.
interesting.
So how often would you say.
Out of the a hundred SBA loansyou, you write what percentage
of them are for an existingbusiness owner to acquire
another business for expansionpurposes.
Natalie Beane (22:03):
I mean, that fluctuates a lot over time, but
maybe somewhere between 25%, itcould be up to 50% in any given
window of time.
It's, it, it.
Fluctuates, but you're right,what you said before about there
being a lot of turnover, fromone generation to the next right
now.
And so there are a lot of folkswho, uh, earlier today I was
working on a project wheresomeone started their own
(22:24):
business six years ago, and nowthey're ready to expand and
they're expanding throughacquisition.
So, I expect to see more of ithonestly in, in the coming
years.
Ken Lucci (22:34):
Yeah, we, we see a ton of it in this space.
Um, we would like to prepare thenext generation of operators,
you know, that are much youngerthan me.
The guy, the guys in Galveston,there's tons of'em that are 35
and 30 to 40 that just love thebusiness, but we want them to be
financially prepared, right?
(22:54):
We're not interested in.
They come up to me and they talkabout, oh my, you know, my
revenue growth, I've alreadyexceeded my last year numbers in
the first six months.
And I say, okay, great.
What's your gross profit margin?
How's your cash flow?
How's your net operating income?
And they look at me like, whatare you talking about?
Right?
So, so the financial, you know,you, you've said, what really we
(23:14):
preach is the financialperformance and financial
documentation If you want tohave a lending relationship, A
bank like yours is criticallyimportant.
Natalie Beane (23:26):
It absolutely is, and I think something to keep in
mind as well is most, mostlenders lend into a variety of
industries, and so we are infact relying on the buyers we
work with to be capable ofpresenting a compelling case and
help us understand, we know howto read financial statements.
We know how to evaluateprojections, but we maybe don't
(23:46):
know your business model as wellas you do, and we want to be
able to rely on you to help usunderstand, not in general, but
in specific.
How is this new, motor coachgoing to improve your profit
margins?
Or how is acquiring this newbusiness going to improve
things?
And if you can't crediblyunderstand or explain how you're
(24:09):
achieving performance in yourexisting operation, you know,
that just reduces credibility.
And it ma it makes it harder onthe lender to approve even if
the target company is performingand appears profitable.
So.
goes beyond just proving thatyou're gonna be good at running
the business.
It's also setting your lender upfor success, getting an approval
(24:30):
from their credit partners.
Um
Ken Lucci (24:33):
so the business case.
So if I'm, if I wanna buy, ifI'm a, an operator or existing
company that wants to expand inpart through acquisition, uh,
you know, it's always, it's,it's a, it's one leg of the
stool.
I mean, organic sales growth iscritically important.
But number one, the financialperformance of, of the, of the
(24:53):
primary business has to bepristine, and it has to be
demonstrated on accuratefinancial records.
If you are going to go out andbuy a business, it's important
that you build the business caseas to why this is a good
investment for you, and what youcan do with it afterwards.
so the, the buy side financialsand the sell side financials are
(25:18):
critically important, and thenit's building the package or the
business case of why this is sogood for you.
why this is the best way for youto grow your business.
So talk to me.
Let's talk about the nittygritty of the process, right?
People think getting an SBA loanis an arduous process.
(25:38):
Let me just dispel some myths.
I've seen, I've seen some SBAdeals go through exceedingly
quickly, but it's all thepre-work, it's the creation of
the package, it's the businessplan, it's the buyer, has had a
great demonstrated, history ofhis own profitability, and I've
seen'em sail through what's theaverage time for, for getting an
(26:00):
approval and then funding alone.
Natalie Beane (26:05):
The first one's a little easier, but it.
I will say that it, the varianceis pretty great.
Among different applicants, andthen the reason you already just
highlighted is key.
Are you ready when you come tome?
If, if you're not ready and youdon't have a package and I have
to coach you through it and youhave to go spend time, it's
gonna take a long time.
But if I assume I have prepared,prepared applicants, then you
(26:28):
know, maybe it takes a week topre-qualify a deal, two to three
weeks to underwrite it, and thendepending on if there's real
estate or not.
60 to 90 days to close a deal.
So, and if there's some kind ofconstruction or renovation or
project oriented work going onthat, that elongates the process
because then you're talkingabout plans, specs, permits and
(26:49):
that kind of thing.
So that's kind of its own wholecategory.
But, um, you know, anywhere from60 to 120 days depending on the,
the loan profile.
Now to your point, I've seenfolks sail through in 40 days or
Ken Lucci (27:03):
Right, if they're prepared.
Natalie Beane (27:05):
If they're prepared.
And it's one of the reasons whyI think beyond just having your
financial, uh, statements andjust your financial documents
organized and, and in order asa, as a general rule, it's
important to know what we'regoing to ask for.
So you know what, what to haveready.
And that's why I think it'sreally smart and reasonable for
(27:26):
prospective buyers to consultwith a lender.
Ahead of time before they'reready, before you sign an LOI,
so that you know what questionswe're going to ask so that you
know which things jump out to usas Hmm.
Confusing or we want moreinformation.
That way you're not flyingblind, uh, and you're not under
the clock.
You know, once you sign an LOI,with a, with a seller, you know,
(27:49):
they're, they're alreadycounting the money or depositing
it, so there's.
Ken Lucci (27:55):
The money before we even give a value.
Natalie Beane (27:58):
That's fair, true story.
so yeah, you know, before youstart that clock, consult with
someone who can make sure youare set up and it, and sometimes
that's someone is me, it's thebank.
you know, we, we do this all thetime.
Uh, look at an existing businessowner.
Look at their per personalfinancial situation and provide
feedback and say, Hey, yeah,you, you are sort of
(28:20):
pre-qualified to look for abusiness or.
Before you come back with abusiness to buy, take care of
these couple of things.
Um,
Ken Lucci (28:27):
You know, what you just said.
There is a, is a, is what I callthe golden nugget, right?
Natalie Beane (28:31):
mm-hmm.
Ken Lucci (28:32):
my dad was a very successful entrepreneur.
He was from his bootstraps, kindof a guy, and started in the
grocery business with a cornerstore and ended up owning, you
know, a couple of shoppingcenters.
Three or four, three or fourcommercial buildings he built.
And he was a character, and hesaid to me, your most important
relationship is with your mate.
(28:54):
The second is with your mother,with your family, and the third
is with your banker.
And he said, if you're abusiness guy and you don't have
a banker, and I think he saidthe fourth was a lawyer.
I have a tough time with thatone, but that's okay.
if, if you don't have arelationship with a banker, a
local banker.
(29:15):
I, I find it difficult tounderstand why, because you're
not able to take onopportunities that come your
way.
You're not able to act quicklyenough.
So what you're talking about ishave pre-conversations get your
ducks in a row.
Natalie Beane (29:31):
Yeah.
Ken Lucci (29:31):
far as financial reporting, I, I always advocate,
you know, if you are gonna runthis marathon of buying another
business or you are going toundertake this, we first need to
look at your business to makesure things are going well, but.
involve a banker, involve alender, and these discussions,
even if you said,'cause I heardyou say even before you found a
(29:54):
business, I would encourage theaudience to identify three or
four targets.
Identify, you know, who thesecompanies are if you, and you
know what your strategy is.
I have a great, client that hasbuilt their business based on
what I call the hub and spokemodel, where they have their
hub, they do all of their busmechanics work, and they do
(30:15):
their refurbishment at this hubin New Jersey, and then they
have satellite offices aroundthat don't require the mechanics
because they just.
Send a driver back with theMotor coach.
I have other people that acquirein what I call a chess game
approach, where I'm from DC andnow I'm gonna open up in
Philadelphia and I'm gonna openup, up in Newark.
(30:37):
So, I mean, finding a lenderupfront to me, you know, you
don't charge for your advice.
Natalie Beane (30:48):
No.
Ken Lucci (30:48):
the way to the audience I do.
So, sorry.
Um,
Natalie Beane (30:53):
It's worth it though guys.
It's an investment.
Ken Lucci (30:56):
you know, it's, it is an investment and we always say
this, we give a money backguarantee because I don't want
you on unhappy.
I see you at a conference andyou are not happy with our work.
Now, you may not like thevaluation we come up with, but
I'm gonna, I'm gonna point tofour or five comps.
I'm gonna, I'm gonna alwaysinvite you to, to get a second
(31:18):
opinion, but we offer a moneyback guarantee of what we do
when we find profit link leakslike crazy.
When we do a valuation, we willfind issues that come up and
I'll say, listen.
Before you sell this company,this is gonna come up through
the process.
So I think we ought to fix thisfirst and let's, let's give
(31:39):
ourselves a runway to see thatit's fixed.
So talk to us about, you are theseller of a business.
How would you advise a seller toprepare?
Because, you know, making thebusiness, or excuse me,
positioning the business asbeing able to get financing
through the SBA.
(32:01):
Of a sales, uh, tool.
So talk to us about that.
Natalie Beane (32:06):
It is, you know that there's something I say
frequently, which is.
If you want to expand theperspective pool of buyers as a
seller, then make sure thatyour, business is gonna be SBA
eligible, and not just SBAeligible, but well suited,
right?
You can be eligible, but stillnot a very good credit.
(32:27):
So to sellers out there, I wouldrecommend consulting with
lenders, um, at least one lenderto know, what is a lender going
to say about how much can befinanced on.
On this kind of acquisition.
And so, you know, if you thinkthe value is here, but a bank
thinks you can only lend thismuch money, well then, you know
(32:47):
you need somebody with that muchcash.
if you get insight into thetypes of questions that we're
gonna ask.
Now, if the seller's alreadyworking with someone like you
can, and they've alreadyidentified leaks, you know,
they're probably gonna haveready answers for all those
questions.
But a lot of times sellers, ifthey come to me first, uh, they
may be hearing feedback for thefirst time.
They may not have been workingwith someone like you, so.
(33:08):
It's the same advice I give tobuyers.
Talk to a bank first.
Let a bank tell you what kind ofstructure they feel they could
offer a qualified buyer for theacquisition of your business.
Um, and let that lender alsothen counsel, and this, this
goes to advice that's sort ofthe flip side for a buyer, but.
If a seller is aware of how abank might value a seller note
(33:31):
as part of the capital stack onan acquisition, and if a seller
can understand and havemeaningful conversations upfront
to understand this is going toexpand your pool of buyers, it's
going to strengthen the value.
That a bank is willing tofinance, if you're able to offer
a seller note in this form orthis fashion.
and here's why you might needto, here's why a bank might want
(33:54):
you to, even if you don't needto.
socializing those ideas earlierin the process I think really
makes for a smoother futureprocess.
And I, I, you know, there arefolks out there that don't like
to face.
Tougher conversations and maybe,you know, some advisors don't
wanna tell a seller, they mightneed to have a, a note involved
in a
Ken Lucci (34:13):
Oh, this is, you're not having a conversation with
one of those advisors.
Natalie Beane (34:18):
Yeah.
That
Ken Lucci (34:19):
I, we, we prepare them and I say, would you rather
me tell you the ugly truth ofsomething that's uncomfortable?
Or do you wanna wait for, youknow, it's to hurt the process.
So what you just talked about,talk about the seller node piece
for a second.
Talk about why that's important.
(34:39):
The seller of a business, takingback, a note, taking back paper,
a promissory note.
Natalie Beane (34:46):
Yeah, so I see this as a way to.
Do a couple different things.
And one of those things is ifyou have a really qualified
buyer from an experiencebackground or an experience
perspective, but maybe they'reslightly lighter on liquidity,
um, but you wanna be able tosell to an operator that you
(35:07):
feel confident in.
one way to bridge the gap andreduce the down payment
requirement on that prospectivebuyer is to be willing to offer,
A note in the amount of 5% ofthe total project costs, uh, on
full standby for the life of theloan.
Now, that causes some people tofaint if they haven't heard of
that idea first.
But if you think if I carry 5%of a total project cost and
(35:31):
defer receipt of payment on thatfor, for the life of an SBA
loan, which by the way onaverage only ends up being six
or seven years, not 10.
But that means I can get 95%cash upfront.
I mean.
That's huge.
So that's one way is to helpreduce the down payment burden
on a prospective buyer that youmay be motivated to sell to.
(35:53):
Uh, another way is if there issome perceived weakness or
softness in seller performance.
Sometimes we see businessesbeing sold under duress, right?
Maybe someone's ill or has afamily who's been ill, a family
member who's been ill.
So there's a little softness inrevenue or profit margins.
one way to mitigate that is toask the seller to carry a note.
(36:14):
And in the, in that case, itdoesn't necessarily need to be.
With deferred payments, it'sjust a way of allowing the
seller to share in the risk ofacquisition.
A risk that you might argue isincreased by something about the
financials or something aboutthe, about the transaction.
Um, other times it might just beto fit within the credit box of
a prospective lender.
(36:34):
They may say, well, we, we likethis kind of, we like this kind
of.
Debt, but we don't wanna gobeyond X.
So we've gotta find a way to, tobridge this gap.
Even though the SBA says, Hey, a10% down payment is, is
acceptable, you may need 22% toget the deal done, and if the
borrower brings 10, there's 12,you gotta figure out.
So I think in general, it's areally good tool to basically
(36:56):
bridge the gap on purchase priceand available funds.
And then also just todemonstrate, uh, a little shared
risk for the seller.
Ken Lucci (37:05):
Well, it, it, you, you've said a mouthful there.
I mean, let's, let's put it inreal world perspective.
You have, you have someonethat's been with you in the
business, operating the businesswith you for years.
Maybe your operations team wantsto buy the business and you
wanna retire.
What, what Natalie is saying isthe seller taking back a seller
(37:28):
note.
On a buyer or a couple of buy agroup of buyers that they have a
great amount of respect andconfidence in shows the bank
that this is a good deal.
Natalie Beane (37:45):
Yeah.
Ken Lucci (37:45):
In part.
because, you know, we, we allhave situations.
We work with situations all thetime where a key person wants to
buy the business.
They could, they have, you know,family, friend and family money
for the down payment.
Um, and this the reason for theseller promissory note of the
seller note, it's multifaceted,right?
(38:06):
It takes some of the risk offthe deal.
Right for the bank.
it puts the loan more in acriteria for, for an approval,
and then it demonstrates to thebank that the seller has
confidence in the buyer.
Natalie Beane (38:21):
Yep.
Ken Lucci (38:22):
Critically important, critically important.
so there is, talk to us aboutthe sellers that are out there.
You might not have these, these,uh, these cats out there, but
talk to me about the sellers whosay, I want a hundred percent of
my cash at closing.
How often does that
Natalie Beane (38:43):
Well, I'd say it probably happens a lot.
however, I think there's a lotof folks who want a hundred
percent of cash at closing.
To that, I say, okay, but ahundred percent of cash at a
closing that's never happened isstill zero.
What about 95%?
What about 95% of the cash at aclosing date?
(39:04):
I can name
Ken Lucci (39:05):
I, I should have teed it up better.
I want a hundred percent of mycash at closing and I want my
price.
You, your price not, might notbe reality.
Natalie Beane (39:17):
That's, that's right.
That's right.
I mean, that is an interestingand good point.
I think that is when sellernotes can sometimes come into
play, it's a way to thread theneedle between a per a, a gap
in.
Value determination.
A seller thinks their businessis worth this.
A bank and say, a buyer thinkit's worth this.
And so it's like, well, this iswhat's financeable.
(39:38):
If you, if you still wanna talkabout that number, then you're
gonna have to carry that note.
It's gonna have to besubordinate and, you know, we'll
see.
Ken Lucci (39:45):
Right.
Subordinate, meaning the SBA hasto be paid off first and your,
the seller note is behind theSBA.
Natalie Beane (39:55):
Yep.
Ken Lucci (39:56):
Okay.
I mean, and, and the funny thingis where I never, there's few
things when I get into this.
I got into this on a whim.
I did this part-time, 2018.
I sold my limo company in 15, Ithink I told you that, or 12.
And I got my final payment in15.
I never imagined it was gonnajust explode the way it has.
Few things that have beenshocking to me, or surprise
(40:18):
number one, the number ofcompanies that operate without
financial reporting on a monthlybasis.
That has truly been a shock.
I come from a background and Itold you where my dad was in
business and he used to so longago.
He, he used to teach me,remember the accounting green
sheets?
The accounting green sheets thatwere literally the ledger sheets
(40:41):
that it's manual Excel reports,
Natalie Beane (40:45):
Mm-hmm.
Ken Lucci (40:45):
right?
And he would show me the greensheets and we go into the store
every Sunday and he would showme, okay, this is how Dry goods
did, this is how produce did.
And Ken, here's the profit thatwe made at the end of the month.
It's amazing to me how businessowners don't.
Have monthly financialreporting?
Is it just my industry?
(41:07):
Do you see
Natalie Beane (41:07):
No, no, I see the same thing.
And I think sort of re relatedto that, if you're not looking
at monthly financials, then howcan you tell when you take on a
big new client at what I see sofrequently is the thing that's
putting a business under stressis they took on the dream
(41:28):
client, but it's not profitable
Ken Lucci (41:30):
With 90 day terms and low
Natalie Beane (41:32):
Yes, yes.
90 day terms if they want, youknow, where there's not really
any recourse.
And if you're not gettingregular financial statements and
looking at that dry goods levelto your father's, you know, uh,
example then how do you know ifa given customer or route or
whatever is going is going toactually do your business?
(41:54):
Good.
Top line revenue for the sake oftop line revenue.
that could be a ticket tokilling your business or putting
it under extreme
Ken Lucci (42:01):
wait a minute, John, you better have grabbed that
because that was the snippetwe're gonna use.
Um, because so many, uh, so manypeople, it's, it's like the
restaurateur who on a Fridaynight laments, he looks and says
every table is full.
And I've got a waiting list ofpeople.
Then on Monday he can't pay forthe food'cause he doesn't have
(42:24):
he, he has to pay his payroll,he has to pay his rent.
He has to pay his insurance.
He doesn't understand thatthat's not a measure of success
or how many meals come out ofthat kitchen is not a measure of
success.
when we work with operators on aretained basis, or we do their
monthly financial reporting,first thing they said to me is,
(42:46):
well, wait a minute.
My, I guess my accountant doesthat.
Okay, well, your accountantmight do it, but you're
obviously not looking at it.
And if you are, you're justlooking at the bottom line,
which is good, but.
Monthly financial reporting.
Ideally, you want to pull outwhat you just talked about.
You want to pull out keyfinancial metrics by revenue
(43:08):
silo, by, you know, looking atyour cost of goods.
You may just have go signed afantastic client that does
airport transfers with you 50 aweek, but they've demanded you
match the pricing of someone whojust didn't know.
How to price things and it's,it's putting stress on your
(43:28):
business.
Segue into cash flow.
Talk about how free cash flowand cash liquidity is something
that, that you look at when weshould be looking at, when we're
examined buying a business.
Natalie Beane (43:42):
Well, it's a great example and a great point.
I think if, if you take on acustomer that demands margin de
demands pricing that.
To, to match someone else who'snot making good choices.
Your margins end up being sothin that you're having to
invest a lot more upfront tomake less.
And not only that, there'sopportunity cost of that.
(44:03):
So in the time you aredelegating resources to earn
those tiny margins, you areforegoing, smaller, maybe less
glamorous clients or prospectiveclients who would afford you.
Better margins.
And at the end of the day whenwe are looking at, hey, can this
business afford to expand andpay for another business?
(44:25):
If you don't have any leftovercash flow after you pay the
overhead to service thecustomers that you have, even if
you're looking at a profitablebusiness, we're gonna look at
that and think this is not agood indicator that you're going
to be able to manage to healthyprofit margins.
It doesn't inspire confidencewhen we are evaluating whether
(44:46):
or not a given operator shouldbe approved for an expansion.
But also it's, it's like to yourother example about buying, you
know, investing in other$500,000, in a new piece of
equipment, it's if you can'tshow us how that will affect the
bottom line in a positive way,That's not really gonna make a
good case for us giving you aloan to make that acquisition.
(45:07):
So just because you can bring ina really big client that would
give you 95% utilization of anew piece of equipment.
If you can't also show me thatafter you pay for the debt,
after you pay for the all of thecosts of, you know, doing the
business.
If you guys show me there'sleftover money there.
Then that is not going to be arecipe before approval or
(45:29):
success for the business in, inmy view.
Um.
Ken Lucci (45:32):
Yeah, to a hundred percent.
And we, we actually, we actuallyhave several use cases where we
worked with clients who wantedto sell their businesses.
And their primary reason forselling it is'cause they're not
making any money, right?
So they, they have a businesspartner and they want to be
bought out.
And when we look at thebusiness, to your point, we are
seeing, oh, I have all thesecontracts, these shuttle
(45:54):
contracts.
Well, first of all, there's alittle bit of a misnomer there
because it's a, it's basicallythey can fire you anytime.
What you have is a piece ofpaper.
You don't have a legally bindingcontract where the person has to
pay you for a di for a term,right?
You have a pricing term sheet.
So we actually have a couple ofsituations where.
(46:16):
They have had municipalcontracts and they've said, this
business is worth money becauseI have these municipal
contracts.
When we've done the analysis andwe've said, all right, here's
the revenue that contract bringsin.
This is the equipment that'sdedicated to it, doesn't do
anything else but that municipalcontract.
Here's the insurance, here's thedriver, here's the fuel.
Here's all of these things.
(46:36):
Wear and tear, repair,maintenance, et cetera, and
depreciation of the equipment.
You're making 18% gross margin.
You might as well leave thatpiece of equipment in the
garage.
Because all you need to happenis somebody sideswipes a poll
and now you've totally lostmoney.
So the misnomer that all revenueis good revenue, you know, you
(46:57):
have to know what yourdefinition of good business is.
and again, you know, when wetalk about buying a company, one
of the key indicators is whatdoes their pricing look like
compared to yours?
If you've identified that youare running a profitable
business.
You just want to take acompetitor out.
In certain cases, if theirprices are that low, all you
(47:17):
have to do is sit and waitbecause at some point they're
gonna go.
you shouldn't take on anotherbusiness with low margins to
expand your revenue because itcould kill the host, it could
kill the host.
how important in yourestimation.
is the human capital of thebusiness.
(47:38):
If I'm gonna try to, uh, expandthrough acquisition, how
important is it to you to seethat the team.
Of the host company is, has gotgreat experience besides the
owner, right?
Because the owner, frankly, Ialways say this, you're, you are
one heartbeat away from that,from that loan defaulting,
right?
Because you do everything in thebusiness.
(47:59):
So talk about that.
Talk about the team and what weshould be preparing a buyer for
and, and demonstrating thatthey've got a good team.
Natalie Beane (48:10):
Great question.
I think we look at, we'll lookat both the host and the target
to say, alright, number one, isthere a good team?
What's the longevity?
So it doesn't mean people needto have been there for a long
time, but that's usually a goodsignifier.
Um.
So we, we wanna know thebackground and experience of
the, of the folks at the host,but also what does the target
(48:31):
look like and what is thecombined entity going to look
like?
Um, related to that, we alsowant to know about the systems
in place, especially for thetarget.
Um, do the folks.
Are there systems in place or isevery position one heartbeat
away from a problem?
You know, it's like if you don'thave systems, even if you have
(48:52):
the world's best employees ineach different role, if you
don't have good systems, if youdon't have, if necessary, a good
recruiting, uh, program or plan,then it doesn't really matter.
Even if you have great if, ifyou have all the greatest
people.
So we kind of look at the humancapital piece along with the
systems and.
(49:13):
Um, try to make sure that ourbuyers understand how it's gonna
look post acquisition.
And I think this is something Isee a lot of people, you know,
sellers will say, well, I'm nottelling anyone we're selling so
nobody can know, so I can't, Iwon't tell you.
And they don't want to discloseinformation about their
staffing.
and while I can understand someof those fears, it's like, how
(49:34):
can a buyer really make informeddecisions or do an informed
analysis about how theirexisting team.
Is going to be capable ofsupporting the addition of
what's coming or not, you know,depending on what people are
coming with.
So I think that's key as well.
Ken Lucci (49:51):
And, and you know, part of that is also having a
decent advisor, um, that can saythis is information that
absolutely is, is needed to getto the point of a letter of
intent.
And then we have to do fulldisclosure during due diligence.
Talk to me about one, aboutowner consideration.
(50:12):
You know, we deal all the timewith small businesses, I'm sure
you do, where the owner doesn'ttake a W2, they take a year-end
distribution, and that year-enddistribution is a balance sheet
item.
It never hits the p and l.
So how important when someone isselling a business.
To be able to demonstrate thatthey've taken a really, really
good salary and they've taken,they're doing a great job.
(50:35):
They're, they're seven, they'rein the business, but they're
taking out demonstrably morethan their replacement labor
would be.
How important is, is W2 incomeand consistent income come?
Natalie Beane (50:48):
It depends if it's clear to explain, if it's
logical and makes sense, and youcan show me what you were doing
and you have a credible plan forhow it will be done, which goes
in some part to the buyer aswell.
Um.
Then it's not that important.
It certainly simplifies thingsif it's really straightforward
(51:08):
and you've been taking W2 andyou're just replacing one with
another.
but as, as long as the story andthe documents and the numbers
all match, that's the problem.
We frequently have the story andthe numbers don't match.
And it it, you know, for folkswho don't look at their
financial statements, they'relike, who cares?
I'm making all this money.
But for us, we're like, I hearwhat you're saying.
(51:29):
And when I look at the financialstatement, what I see is.
Fill in the blank.
Help me understand this.
what am I missing?
How is this working?
And
Ken Lucci (51:37):
We, we call those, we call those financials, Prego
Financials.
Oh, don't worry.
It's in there.
It's in there.
Okay.
Where is your compensationexactly?
Oh, wait a minute.
Your wife gets paid.
Where is her compensation?
Natalie Beane (51:52):
Like which line item?
Where would point it out?
Ken Lucci (51:55):
Right, Point it out.
It, it is like nobody is goingto approve a loan because you
say this is what you've beendoing.
listen, I could literally talkthe subject with you and, and to
you specifically.
I could talk to you about thisfor a couple of hours, but tell
me, tell us how, um, if someonewas serious about looking into
(52:17):
an SBA loan, tell us about theprocess with provider and how
they find you.
Natalie Beane (52:22):
Sure.
Um.
I'm on LinkedIn, uh, I'm, I'measy to find.
I'm Natalie Bean.
but the process with provide isreally pretty straightforward.
Um.
Everything starts with aconversation for me.
I just like to talk to humanpeople.
We do have a really slick sortof application portal, which
lets us pre-qualify individualbuyers in five minutes or less.
(52:45):
and then a really sort of easyupload thing, but it's really a
three phase process.
There's pre-qualifying, that'severything from making sure
you're sort of generallybankable to me, analyzing the
financial information, comingback to you and saying, Hey,
here are some terms.
That I'm comfortable sending tounderwriting.
This is what the rate will looklike.
Uh, that's part one.
Part two is formal underwriting.
The end of that is a decision.
(53:05):
There's your commitment letter.
That's where you sign something,make a deposit.
And then part three is all thedue diligence that we need to
do.
It's ordering reports.
It's getting into formationdocuments, getting all the sort
of i's dotted t's cross at theend of that we fund.
so for us it's like a lot oftechnology to try to smooth it
out and address some of thatonerous, Stuff that SBA gets a
(53:26):
bad reputation about, but it'sleaning into that technology to
make sure there's a human personavailable to talk to you.
So I, I work with a partner andthe two of us are available all
the time talking to people,answering questions, and trying
to remove obstacles ahead oftime so that they don't derail
the process so that they don'tslow things down.
Ken Lucci (53:44):
All right, so we can find Natalie Bean from Provide
on LinkedIn
Natalie Beane (53:48):
Yep, yep.
Ken Lucci (53:49):
give out the website?
Natalie Beane (53:51):
Uh, yeah, for sure.
It's get provide.com.
Ken Lucci (53:54):
But always ask for Natalie Bean.
Always.
Natalie Beane (53:57):
always,
Ken Lucci (53:58):
And, and I will tell you, I will attest to how
accessible you are becauseagain, I've reached out to banks
and and said, listen, you know,we've reviewed 280 of these
companies.
We do work with banks now, andwe just want to blaze the trail
and kind of pre pave the trail alittle bit for some of these
transactions, and I can'tbelieve how even small lenders
(54:20):
are so difficult to deal with,and I was so happy to find you.
Um, and, and you make theprocess, you really explain the
process.
And I will say the SBA.
I don't find the process anymore difficult than a typical
commercial lender.
I, I just a regular commerciallender.
I just don't, and I like, I likethe SBA loans because for the
(54:43):
bank, it, it does share yourrisk with the government.
The government.
It's this program is thegovernment investing in the
small business engine ofAmerica.
So I like it.
Natalie Beane (54:56):
Yep, me too.
I love it.
15 years in.
I love it.
Ken Lucci (54:59):
Well, you, you've seriously made, you've been very
successful at it, so Iappreciate your time.
Natalie Beam from Provi provide,again, it's get provide.com, but
find her on LinkedIn.
And everybody, thank you verymuch for listening to another
exciting episode.
We hope you get some value outof it Thanks a lot and have a
great day.
(55:20):
Thank you for listening to theground transportation podcast.
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For more information about PAXtraining and to contact James,
go to PAX training.com.
And for more information aboutdriving transactions and to
contact Ken, Go to drivingtransactions.com.
(55:44):
We'll see you next time on theground transportation podcast.
And good afternoon.
I would say to the studioaudience, but we don't have a
studio audience.
Good afternoon everybody.
This is the GroundTransportation Podcast.
My name is Ken Lucci fromDriving Transactions.
Um, and I usually run thispodcast with my lovely and
talented, partner in crime,James Blaine from PAXs Training.
(00:52):
Unfortunately, he is out.
Training chauffeurs and CDLdrivers somewhere around the
industry.
So I am blessed today to have a,guest, to interview and I am
really pleased to, to introduceyou to Natalie Bean from provide
website is get provide.com, andthey are an SBA lender.
(01:16):
So Natalie Bean.
Welcome, welcome, welcome.
thanks for agreeing to do this.
I, I think it'll be fun.
Natalie Beane (01:23):
Me too.
I'm happy to be here.
Thanks for the invitation.
Ken Lucci (01:26):
So you and I have spoken, I want to bring as many
of my clients and many businessowners information on how to get
an SBA loan.
And you've been so open insharing information, with me.
Give me an idea first, talkabout your background and then
tell us about provide,
Natalie Beane (01:47):
sure.
So, uh, I've been doing SBAlending for about 15 years, and,
currently I'm working forProvide, which is the small
business, arm or division ofFifth Third Bank.
And.
Among other things provide, doesall of the SBA backed lending.
our sort of history, uh, on theprovide side was as a FinTech,
(02:10):
out in San Francisco providingpractice specialized loans and
healthcare.
And, fifth Third was a, was afunding partner of ours and they
really liked the way we usetechnology to enable.
Actually more human contact inthe lending process.
And so back in 2021, fifth Thirdacquired us.
And since then it's just beenshifting focus, um, within the
(02:35):
small business piece of the bankover into the provide model.
And so today, uh, providersresponsible for doing all the
SBA loans for entrepreneurscoast to coast, And my part of
the process within the SBA spaceis on the front end, working
with entrepreneurs to help them,uh, assess whether they're ready
(02:56):
for an SBA loan to assesswhether they're a good credit
fit.
Um, for the bank.
Ken Lucci (03:02):
So Fifth Third is one of the largest banks out there,
right?
Natalie Beane (03:07):
Yeah, it is.
Ken Lucci (03:08):
Pretty big.
Natalie Beane (03:09):
It's.
right now I think it's a 220 ishbillion dollar bank.
Uh, we recently announced, amerger or depending on how you
look at it, an acquisition ofComerica Bank that's slated for
Q1 next year, which will bump usup into, into the top 15, I
think.
So we'll be up to about a$300,$300 billion bank.
Yeah.
Ken Lucci (03:30):
Well, what intrigued me when you and I first spoke is
Fifth Third Bot provide, but nowyou are really the tail that
wags the dog, meaning youprovide, does all of the SBA
work.
Primarily the SBA work withinFifth Third.
They didn't absorb you and say,okay guys, we got this.
(03:53):
They basically said, run withSBA, correct?
Natalie Beane (03:57):
Yes, that is correct.
Um, fifth, third had always doneSVA, but in a sort of, uh,
spread out, brick and mortarbased type model.
Yep.
And so after seeing, the wayprovide process, loans for
entrepreneurs in the healthcarespace, they just decided that
rather than try to absorb uslike you might expect, uh, they
(04:18):
wanted us to sort of take thelead and.
Adapt our model to focus in theSPA space for the whole bank.
Ken Lucci (04:26):
You know, I gotta give him credit because most,
large acquirers.
Don't take best practice fromthe companies they've purchased.
They basically try to infuse theway they do business onto the
acquired company.
So that's kudos to the, to theexecutive team at Fifth Third.
You know, they bought a greatasset and they've expanded it.
(04:48):
So talk to us about.
The types of SBA loans and whatthey're used for.
What are the different types ofSBA loans that, you know, our
audience is largely passengertransportation companies from
non-emergency medical companies,chare limousine companies, and
then we have large motor coachcompanies that listen as well.
(05:11):
So talk to us about thedifferent types of SBA loans
that may be applicable.
Natalie Beane (05:17):
Sure.
well, I'd say there are threesort of buckets.
Um, one is the SBA seven.
A loan program, which has thebroadest.
Possible uses of proceeds and,and I would argue might be the
most commonly applicable in, inyour space.
basically you any businesspurpose, is eligible use of
funds under that program, withterms up to 25 years.
(05:39):
So that's a seven a program.
Um.
the next sort of bucket would bean SBA 5 0 4 program, which is
highly specialized for realestate acquisition and
potentially heavy equipment withlong, useful life.
that program.
Is not all funded through directbank lending.
In fact, uh, the way the seven aprogram is.
(06:02):
Um, so it's, it's, it's a littlemore, it's a lot more
specialized, you could say.
Um, the, the third bucket wouldjust be various lines of credit
programs.
Um, there is an express line ofcredit that in my experience, we
will often use as a companionproduct to a term loan when it
makes sense in a given industry.
And there are some specializedfor different.
(06:24):
business verticals out there,
Ken Lucci (06:26):
So give me an idea, if I'm an existing business,
what do existing businesses use?
SBA loans for most?
If I'm going to use an SBA loanjust to for expansion, what do
you look for?
You're looking for businessplans.
You're gonna be certainlylooking for use of.
(06:48):
An explanation of use of capitalbeyond I want to grow my
business.
What do you look for?
If I wanna take an SBA loan outto expand my existing business?
Natalie Beane (06:59):
I think the number one thing you've already
kind of touched on, and that iswe're gonna ask more questions
than just you wanna expand.
We wanna understand how and sowe do this.
In large part to make sure it'sa well thought out, thought out
plan, but also, um, to decidewhich buckets of fund uses
things fall into.
So you can use it to buyequipment.
(07:20):
inclusive of, uh, rolling stock,equipment necessary to support
expansion.
operating capital, workingcapital to support, say a
marketing initiative or hiring.
I will say within the workingcapital bucket.
That is one area where SBA justdoesn't want us sort of handing
out big chunks of cash.
You really, you've really gottahave sort of a well thought out
(07:41):
plan.
Uh, but you can also use, SBAfunds to acquire real estate.
So if you're, you know, lookingto build a depot or expand a
depot or something like that,you can use the money for that.
Another reason we'll use moneythat kind of helps to expand is
to consolidate debt.
that exists already on thebalance sheet.
It's gotta make sense.
If we can imp improve terms andtherefore payments and free up
(08:04):
some cash flow.
sometimes just the act of doingthat, as you've no doubt seen,
can actually free people up tosort of expand organically
without additional cashinfusion.
Mm-hmm.
Ken Lucci (08:14):
right.
And you know, this is a leadingquestion because we do financial
analysis and we sell a coursethat teaches people how to
create, uh, cost of goods,financial statements, and
monthly financial statements.
How important is demonstrating.
Uh, exceptional finance,financial performance.
(08:35):
And how important are thefinancial reporting documents of
the business to get a loan?
Natalie Beane (08:41):
It couldn't be more important.
I'd say the likelihood ofapproval and the speed with
which you can receive anapproval and the smoothness of
the act of receiving anapproval.
All of these things are directlytied back to the quality of the
financial package you're able toput together.
know, in this space, most SBAlenders are accustomed to
dealing with folks who are,let's say.
(09:03):
Not your customers, so maybe notas ready.
So we're used, we, you know, weare used to holding hands and
helping people along, but thefact is it's not our primary
focus.
And so you may be a verybankable, uh, business, but if
you can't show that you'rebankable, it may not matter.
You know, you may not get theyes.
And if you do get the yes, uh,you may not get the best terms
because you don't have the mostcompelling package.
(09:25):
Um, uh, so I, I'd say it justcould not be more important.
Ken Lucci (09:29):
Well, it, it's, um, interesting to me.
Let's, let's step back.
One step.
Let's, if I'm gonna be buyingequipment, rolling stock.
for the audience out there, itdoesn't make sense to go to the
SBA to buy SUVs or vans becauseof the, there's not enough
useful life.
But if I had a compelling caseas a chauffeur company that's
(09:51):
got a long track record in theregion, I've been very
(10:34):
profitable and I've got a greatfinancial package.
A, you know, we talked a littlebit about motor coaches, 56
passenger motor coaches beingtypically a 10 year vehicle.
Does that make sense for an SBAloan?
Natalie Beane (10:49):
It can, uh, the only time I ever see that
creating challenges is if folksare trying to buy those on, in a
sec, a liquid secondary market,and they can't.
They need to buy it quickly.
They don't have time to line upall of the financial documents
and get things in order to beable to fund in a timely
fashion.
But aside from that, yeah, aslong as the useful life is in
(11:13):
that 10 year range, it does makesense because that is, the
maximum loan trend we can offeron a non-real estate loan.
And, so yeah, it, it, it is areasonable way to use an SBA
loan.
Ken Lucci (11:25):
We've worked with several large chauffeur
companies.
You know, the, the chauffeurspace is much like the
restaurant business and you, yougo from like the local diner.
To, to, uh, a fairly decentsized family owned restaurant to
maybe a local regional chain.
The average chare company outthere, you know, can be between
(11:47):
3 million and, and, and 5million is what our smaller
clients are.
But we've worked with severalcompanies, the seven to 10
million range who've wanted togo out and buy motor coaches,
and they wanted to get into thatspace and.
Which, which to just describeit, it's almost like going from
(12:08):
propeller planes to the jetplane, and to me it makes.
I don't know how people buy.
It's a 500,$600,000 asset, howyou possibly buy that without a
business plan.
So I would encourage anybody inthe audience who's thinking
about pivoting into largeequipment it's not for the faint
(12:28):
of heart, and you have to befinancially capable, uh, across
the board.
so the SBA seven A, uh, let'stalk about it for buying real
estate.
I'm gonna set this up.
I'm a small business chauffeur,uh, company and I've been
leasing, from someone and payingsizable rent, but now I wanna
buy a building.
(12:49):
does provide think is a goodinvestment in that kind of a
circumstance?
I'm gonna be my own landlord.
I'm gonna be paying, my businessis gonna be paying the mortgage.
So talk about that as a, as a, agood use of the SBA.
Natalie Beane (13:03):
Yeah, absolutely.
Um, so the first thing we'lllook at is.
You know, has the business beenaround long enough for us to be
able to assess on historicalbasis whether they could afford,
could have afforded to pay theproposed loan?
And I mean, a good gut check ofcourse, is how much rent were
you paying and what's the debtservice on a 25 year term?
(13:24):
Um, so, you know, that's justkind of table stakes.
But, or, and we also.
Wanna make sure that thelocation of the property is
gonna make sense.
You know, is it, is it nearenough?
By that, it doesn't require afundamental reconsideration of
the way the business is beingrun.
Um, it that there's that.
(13:44):
Um, and then beyond that, we'rejust looking at is the, is the
property in good condition?
Does it need a new roof?
You know, does it, is itproperly zoned?
Will, are you buying an amountof land that is sensible for the
business?
Um.
You know, this doesn't happenvery often, but there are times
when a seller owns a large plotof land and, and a prospective
(14:06):
borrower for us is looking for aportion of it, but can't buy
only a portion of it.
And so, you know, with SBA, wehave to think through, is that
an investment in part or not?
Um, that's not very frequent.
It's just something we kind ofhave to keep our eyes on to make
sure.
Um, otherwise it's just doesn'tmake financial sense and, and.
I guess related to that, if it'sa company in growth mode, how
(14:28):
much runway will someone have,in the new space?
Is it big enough to absorbwhatever that growth trajectory
is?
Ken Lucci (14:34):
in our case, it's usually they need a par bigger
parking lot, right?
They need, uh, they need agarage for maintenance and to do
in-house maintenance.
So when we talk to our, mostsuccessful sellers, people, you
know, of the, I don't know whatthe number is now.
It's not over 40, but probablyabout 37 companies that we've
sold.
The most successful companieswe've sold have been operating,
(15:00):
they were operating entities for15, 20 years, and they bought
their own, they bought theirreal estate.
They o, they were operating froma building they own, and my
reasoning for really wanting to.
Encourage operators that havegot a good five year track
record of profitability and agood track record of financial
(15:20):
stability and, and great cashflow and great liquidity to buy
is because it is creation,especially, you know, you're a
private business owner.
It's creation of, of additionalwealth.
Owning the real estate and beingyour own landlord there's quite
a few benefits to it.
So I encourage every operatorout there to, In our case, we
(15:42):
help try to help people get onthat road to profitability.
It should be part of your plan.
I mean, unless you're inManhattan, right?
Tough to buy real estate inManhattan.
talk, talk to us because youknow, we see, we see there's a
lot of m and a going on in thisspace.
We see a lot of listen in smallbusiness in general.
(16:03):
I mean the generational turnoverof the, the hundreds of
thousands of small businessesthat their owners are getting
ready to retire.
And I think over the next 10years they said it's the most
transfer of, of, of wealth, ofsmall business transactions in
the history of the country.
So talk to us about using SBAloans to buy.
(16:28):
you know, I'm an operator and Iwanna buy another operator.
Talk to us about that.
Um, and what do you look for tofund.
Natalie Beane (16:38):
Well, when we're looking at an acquisition, there
are two for us to really.
Key considerations and then alot of sort of secondary ones.
the first consideration is doesthe business have historical
financial performance to suggestthat it can support the value
and the debt service for theloan?
Naturally, we wanna see that thebuyer is qualified and knows how
(17:00):
to run the business.
So, you know, that can bedocumented in a variety of ways
if they're already operating abusiness.
That's pretty straightforward.
the other piece of it is thepersonal financial side of the
equation.
And I, I think that is an areawhere some entrepreneurs out
there aren't really thinkingabout how that impacts things.
even if the business is.
(17:21):
Is a solid performing businessand, you know, appears to be
capable of supporting theproposed debt.
If you have, a buyer whosepersonal budget is extensive and
they don't have outside sourceof income, you know, that's
gonna damage the ability of, youknow, we're gonna have to look
to the business, not just tosupport the debt, to acquire it,
but also to support the personalbudget of the buyer.
(17:43):
So the interplay of the personalfinancial scenario with.
The profitability of thebusiness is really key.
And then beyond that, it's just,a lot of the same things you
would think of are there, isthere deferred maintenance?
is there accumulated capitalexpenditure required, that
historical financials don'tshow?
are they inflated in that way?
So it, it's kind of digging intothe numbers to make sure that.
(18:06):
A buyer is going to be set upfor success.
We also wanna make sure weunderstand the working capital
needs because especiallydepending on how well say a
fleet has been maintained or howwell you know a building has
been maintained, we wanna makesure there's enough money to
true that up when someoneacquires.
But also to be poised for growthand to be poised to cover fixed
(18:27):
operating expenses.
you know, while establishingthemselves as new owners.
Ken Lucci (18:31):
So let's put that in limo ease for the audience.
If you are looking to, if first,and for first and foremost, is
it, it, it's true that thebuyer, the the buyer's financial
performance of their, of, let'sjust say they're an operator
now, the host bi, the hostbusiness, right?
The buyer's foundationalbusiness has gotta be on a firm
(18:54):
financial, profitable footing onits own.
Natalie Beane (18:57):
Yes.
Ken Lucci (18:58):
So you, so, so for everybody in the audience, don't
go out to try to acquire abusiness to solve a problem that
you have.
In other words, if you are notprofitable, just adding another
business is not gonna help you,right?
In many cases, I've seen it sinkpeople because they're just not
ready, right?
So let's start with that.
(19:18):
So the buyer's businessfinancials need to be impeccable
in an order with a great historyof profitability.
Cash flow and the businessliquidity should be good.
and what she's saying, whatNatalie is saying is, your host
fleet, your existing fleet,better not be on its last leg
(19:39):
because I'm not gonna lend youmoney to buy another business
because you, primary assets arealready over their, useful life.
At the same time, if you'regoing out to buy an operator's
company.
What she's saying is if thatcompany has a disgustingly old
fleet or an old fleet, right?
(20:00):
I, I use that term, an oldfleet, and it's at the end of
(21:09):
its useful life, you better bestealing that business because
the bank does not want you tohave to buy the business and
then next year go out and spenda million dollars on, on fleet.
So all things being equal.
The buyer's business, financialposition, asset use, asset
(21:31):
value, remaining useful.
Life is critical as well as thesellers?
Correct.
Okay.
Natalie Beane (21:38):
absolutely.
Ken Lucci (21:39):
and the buyer's personal credit.
The personal, balance sheet ofthe person buying the business.
interesting.
So how often would you say.
Out of the a hundred SBA loansyou, you write what percentage
of them are for an existingbusiness owner to acquire
another business for expansionpurposes.
Natalie Beane (22:03):
I mean, that fluctuates a lot over time, but
maybe somewhere between 25%, itcould be up to 50% in any given
window of time.
It's, it, it.
Fluctuates, but you're right,what you said before about there
being a lot of turnover, fromone generation to the next right
now.
And so there are a lot of folkswho, uh, earlier today I was
working on a project wheresomeone started their own
(22:24):
business six years ago, and nowthey're ready to expand and
they're expanding throughacquisition.
So, I expect to see more of ithonestly in, in the coming
years.
Ken Lucci (22:34):
Yeah, we, we see a ton of it in this space.
Um, we would like to prepare thenext generation of operators,
you know, that are much youngerthan me.
The guy, the guys in Galveston,there's tons of'em that are 35
and 30 to 40 that just love thebusiness, but we want them to be
financially prepared, right?
(22:54):
We're not interested in.
They come up to me and they talkabout, oh my, you know, my
revenue growth, I've alreadyexceeded my last year numbers in
the first six months.
And I say, okay, great.
What's your gross profit margin?
How's your cash flow?
How's your net operating income?
And they look at me like, whatare you talking about?
Right?
So, so the financial, you know,you, you've said, what really we
(23:14):
preach is the financialperformance and financial
documentation If you want tohave a lending relationship, A
bank like yours is criticallyimportant.
Natalie Beane (23:26):
It absolutely is, and I think something to keep in
mind as well is most, mostlenders lend into a variety of
industries, and so we are infact relying on the buyers we
work with to be capable ofpresenting a compelling case and
help us understand, we know howto read financial statements.
We know how to evaluateprojections, but we maybe don't
(23:46):
know your business model as wellas you do, and we want to be
able to rely on you to help usunderstand, not in general, but
in specific.
How is this new, motor coachgoing to improve your profit
margins?
Or how is acquiring this newbusiness going to improve
things?
And if you can't crediblyunderstand or explain how you're
(24:09):
achieving performance in yourexisting operation, you know,
that just reduces credibility.
And it ma it makes it harder onthe lender to approve even if
the target company is performingand appears profitable.
So.
goes beyond just proving thatyou're gonna be good at running
the business.
It's also setting your lender upfor success, getting an approval
(24:30):
from their credit partners.
Um
Ken Lucci (24:33):
so the business case.
So if I'm, if I wanna buy, ifI'm a, an operator or existing
company that wants to expand inpart through acquisition, uh,
you know, it's always, it's,it's a, it's one leg of the
stool.
I mean, organic sales growth iscritically important.
But number one, the financialperformance of, of the, of the
(24:53):
primary business has to bepristine, and it has to be
demonstrated on accuratefinancial records.
If you are going to go out andbuy a business, it's important
that you build the business caseas to why this is a good
investment for you, and what youcan do with it afterwards.
so the, the buy side financialsand the sell side financials are
(25:18):
critically important, and thenit's building the package or the
business case of why this is sogood for you.
why this is the best way for youto grow your business.
So talk to me.
Let's talk about the nittygritty of the process, right?
People think getting an SBA loanis an arduous process.
(25:38):
Let me just dispel some myths.
I've seen, I've seen some SBAdeals go through exceedingly
quickly, but it's all thepre-work, it's the creation of
the package, it's the businessplan, it's the buyer, has had a
great demonstrated, history ofhis own profitability, and I've
seen'em sail through what's theaverage time for, for getting an
(26:00):
approval and then funding alone.
Natalie Beane (26:05):
The first one's a little easier, but it.
I will say that it, the varianceis pretty great.
Among different applicants, andthen the reason you already just
highlighted is key.
Are you ready when you come tome?
If, if you're not ready and youdon't have a package and I have
to coach you through it and youhave to go spend time, it's
gonna take a long time.
But if I assume I have prepared,prepared applicants, then you
(26:28):
know, maybe it takes a week topre-qualify a deal, two to three
weeks to underwrite it, and thendepending on if there's real
estate or not.
60 to 90 days to close a deal.
So, and if there's some kind ofconstruction or renovation or
project oriented work going onthat, that elongates the process
because then you're talkingabout plans, specs, permits and
(26:49):
that kind of thing.
So that's kind of its own wholecategory.
But, um, you know, anywhere from60 to 120 days depending on the,
the loan profile.
Now to your point, I've seenfolks sail through in 40 days or
Ken Lucci (27:03):
Right, if they're prepared.
Natalie Beane (27:05):
If they're prepared.
And it's one of the reasons whyI think beyond just having your
financial, uh, statements andjust your financial documents
organized and, and in order asa, as a general rule, it's
important to know what we'regoing to ask for.
So you know what, what to haveready.
And that's why I think it'sreally smart and reasonable for
(27:26):
prospective buyers to consultwith a lender.
Ahead of time before they'reready, before you sign an LOI,
so that you know what questionswe're going to ask so that you
know which things jump out to usas Hmm.
Confusing or we want moreinformation.
That way you're not flyingblind, uh, and you're not under
the clock.
You know, once you sign an LOI,with a, with a seller, you know,
(27:49):
they're, they're alreadycounting the money or depositing
it, so there's.
Ken Lucci (27:55):
The money before we even give a value.
Natalie Beane (27:58):
That's fair, true story.
so yeah, you know, before youstart that clock, consult with
someone who can make sure youare set up and it, and sometimes
that's someone is me, it's thebank.
you know, we, we do this all thetime.
Uh, look at an existing businessowner.
Look at their per personalfinancial situation and provide
feedback and say, Hey, yeah,you, you are sort of
(28:20):
pre-qualified to look for abusiness or.
Before you come back with abusiness to buy, take care of
these couple of things.
Um,
Ken Lucci (28:27):
You know, what you just said.
There is a, is a, is what I callthe golden nugget, right?
Natalie Beane (28:31):
mm-hmm.
Ken Lucci (28:32):
my dad was a very successful entrepreneur.
He was from his bootstraps, kindof a guy, and started in the
grocery business with a cornerstore and ended up owning, you
know, a couple of shoppingcenters.
Three or four, three or fourcommercial buildings he built.
And he was a character, and hesaid to me, your most important
relationship is with your mate.
(28:54):
The second is with your mother,with your family, and the third
is with your banker.
And he said, if you're abusiness guy and you don't have
a banker, and I think he saidthe fourth was a lawyer.
I have a tough time with thatone, but that's okay.
if, if you don't have arelationship with a banker, a
local banker.
(29:15):
I, I find it difficult tounderstand why, because you're
not able to take onopportunities that come your
way.
You're not able to act quicklyenough.
So what you're talking about ishave pre-conversations get your
ducks in a row.
Natalie Beane (29:31):
Yeah.
Ken Lucci (29:31):
far as financial reporting, I, I always advocate,
you know, if you are gonna runthis marathon of buying another
business or you are going toundertake this, we first need to
look at your business to makesure things are going well, but.
involve a banker, involve alender, and these discussions,
even if you said,'cause I heardyou say even before you found a
(29:54):
business, I would encourage theaudience to identify three or
four targets.
Identify, you know, who thesecompanies are if you, and you
know what your strategy is.
I have a great, client that hasbuilt their business based on
what I call the hub and spokemodel, where they have their
hub, they do all of their busmechanics work, and they do
(30:15):
their refurbishment at this hubin New Jersey, and then they
have satellite offices aroundthat don't require the mechanics
because they just.
Send a driver back with theMotor coach.
I have other people that acquirein what I call a chess game
approach, where I'm from DC andnow I'm gonna open up in
Philadelphia and I'm gonna openup, up in Newark.
(30:37):
So, I mean, finding a lenderupfront to me, you know, you
don't charge for your advice.
Natalie Beane (30:48):
No.
Ken Lucci (30:48):
the way to the audience I do.
So, sorry.
Um,
Natalie Beane (30:53):
It's worth it though guys.
It's an investment.
Ken Lucci (30:56):
you know, it's, it is an investment and we always say
this, we give a money backguarantee because I don't want
you on unhappy.
I see you at a conference andyou are not happy with our work.
Now, you may not like thevaluation we come up with, but
I'm gonna, I'm gonna point tofour or five comps.
I'm gonna, I'm gonna alwaysinvite you to, to get a second
(31:18):
opinion, but we offer a moneyback guarantee of what we do
when we find profit link leakslike crazy.
When we do a valuation, we willfind issues that come up and
I'll say, listen.
Before you sell this company,this is gonna come up through
the process.
So I think we ought to fix thisfirst and let's, let's give
(31:39):
ourselves a runway to see thatit's fixed.
So talk to us about, you are theseller of a business.
How would you advise a seller toprepare?
Because, you know, making thebusiness, or excuse me,
positioning the business asbeing able to get financing
through the SBA.
(32:01):
Of a sales, uh, tool.
So talk to us about that.
Natalie Beane (32:06):
It is, you know that there's something I say
frequently, which is.
If you want to expand theperspective pool of buyers as a
seller, then make sure thatyour, business is gonna be SBA
eligible, and not just SBAeligible, but well suited,
right?
You can be eligible, but stillnot a very good credit.
(32:27):
So to sellers out there, I wouldrecommend consulting with
lenders, um, at least one lenderto know, what is a lender going
to say about how much can befinanced on.
On this kind of acquisition.
And so, you know, if you thinkthe value is here, but a bank
thinks you can only lend thismuch money, well then, you know
(32:47):
you need somebody with that muchcash.
if you get insight into thetypes of questions that we're
gonna ask.
Now, if the seller's alreadyworking with someone like you
can, and they've alreadyidentified leaks, you know,
they're probably gonna haveready answers for all those
questions.
But a lot of times sellers, ifthey come to me first, uh, they
may be hearing feedback for thefirst time.
They may not have been workingwith someone like you, so.
(33:08):
It's the same advice I give tobuyers.
Talk to a bank first.
Let a bank tell you what kind ofstructure they feel they could
offer a qualified buyer for theacquisition of your business.
Um, and let that lender alsothen counsel, and this, this
goes to advice that's sort ofthe flip side for a buyer, but.
If a seller is aware of how abank might value a seller note
(33:31):
as part of the capital stack onan acquisition, and if a seller
can understand and havemeaningful conversations upfront
to understand this is going toexpand your pool of buyers, it's
going to strengthen the value.
That a bank is willing tofinance, if you're able to offer
a seller note in this form orthis fashion.
and here's why you might needto, here's why a bank might want
(33:54):
you to, even if you don't needto.
socializing those ideas earlierin the process I think really
makes for a smoother futureprocess.
And I, I, you know, there arefolks out there that don't like
to face.
Tougher conversations and maybe,you know, some advisors don't
wanna tell a seller, they mightneed to have a, a note involved
in a
Ken Lucci (34:13):
Oh, this is, you're not having a conversation with
one of those advisors.
Natalie Beane (34:18):
Yeah.
That
Ken Lucci (34:19):
I, we, we prepare them and I say, would you rather
me tell you the ugly truth ofsomething that's uncomfortable?
Or do you wanna wait for, youknow, it's to hurt the process.
So what you just talked about,talk about the seller node piece
for a second.
Talk about why that's important.
(34:39):
The seller of a business, takingback, a note, taking back paper,
a promissory note.
Natalie Beane (34:46):
Yeah, so I see this as a way to.
Do a couple different things.
And one of those things is ifyou have a really qualified
buyer from an experiencebackground or an experience
perspective, but maybe they'reslightly lighter on liquidity,
um, but you wanna be able tosell to an operator that you
(35:07):
feel confident in.
one way to bridge the gap andreduce the down payment
requirement on that prospectivebuyer is to be willing to offer,
A note in the amount of 5% ofthe total project costs, uh, on
full standby for the life of theloan.
Now, that causes some people tofaint if they haven't heard of
that idea first.
But if you think if I carry 5%of a total project cost and
(35:31):
defer receipt of payment on thatfor, for the life of an SBA
loan, which by the way onaverage only ends up being six
or seven years, not 10.
But that means I can get 95%cash upfront.
I mean.
That's huge.
So that's one way is to helpreduce the down payment burden
on a prospective buyer that youmay be motivated to sell to.
(35:53):
Uh, another way is if there issome perceived weakness or
softness in seller performance.
Sometimes we see businessesbeing sold under duress, right?
Maybe someone's ill or has afamily who's been ill, a family
member who's been ill.
So there's a little softness inrevenue or profit margins.
one way to mitigate that is toask the seller to carry a note.
(36:14):
And in the, in that case, itdoesn't necessarily need to be.
With deferred payments, it'sjust a way of allowing the
seller to share in the risk ofacquisition.
A risk that you might argue isincreased by something about the
financials or something aboutthe, about the transaction.
Um, other times it might just beto fit within the credit box of
a prospective lender.
(36:34):
They may say, well, we, we likethis kind of, we like this kind
of.
Debt, but we don't wanna gobeyond X.
So we've gotta find a way to, tobridge this gap.
Even though the SBA says, Hey, a10% down payment is, is
acceptable, you may need 22% toget the deal done, and if the
borrower brings 10, there's 12,you gotta figure out.
So I think in general, it's areally good tool to basically
(36:56):
bridge the gap on purchase priceand available funds.
And then also just todemonstrate, uh, a little shared
risk for the seller.
Ken Lucci (37:05):
Well, it, it, you, you've said a mouthful there.
I mean, let's, let's put it inreal world perspective.
You have, you have someonethat's been with you in the
business, operating the businesswith you for years.
Maybe your operations team wantsto buy the business and you
wanna retire.
What, what Natalie is saying isthe seller taking back a seller
(37:28):
note.
On a buyer or a couple of buy agroup of buyers that they have a
great amount of respect andconfidence in shows the bank
that this is a good deal.
Natalie Beane (37:45):
Yeah.
Ken Lucci (37:45):
In part.
because, you know, we, we allhave situations.
We work with situations all thetime where a key person wants to
buy the business.
They could, they have, you know,family, friend and family money
for the down payment.
Um, and this the reason for theseller promissory note of the
seller note, it's multifaceted,right?
(38:06):
It takes some of the risk offthe deal.
Right for the bank.
it puts the loan more in acriteria for, for an approval,
and then it demonstrates to thebank that the seller has
confidence in the buyer.
Natalie Beane (38:21):
Yep.
Ken Lucci (38:22):
Critically important, critically important.
so there is, talk to us aboutthe sellers that are out there.
You might not have these, these,uh, these cats out there, but
talk to me about the sellers whosay, I want a hundred percent of
my cash at closing.
How often does that
Natalie Beane (38:43):
Well, I'd say it probably happens a lot.
however, I think there's a lotof folks who want a hundred
percent of cash at closing.
To that, I say, okay, but ahundred percent of cash at a
closing that's never happened isstill zero.
What about 95%?
What about 95% of the cash at aclosing date?
(39:04):
I can name
Ken Lucci (39:05):
I, I should have teed it up better.
I want a hundred percent of mycash at closing and I want my
price.
You, your price not, might notbe reality.
Natalie Beane (39:17):
That's, that's right.
That's right.
I mean, that is an interestingand good point.
I think that is when sellernotes can sometimes come into
play, it's a way to thread theneedle between a per a, a gap
in.
Value determination.
A seller thinks their businessis worth this.
A bank and say, a buyer thinkit's worth this.
And so it's like, well, this iswhat's financeable.
(39:38):
If you, if you still wanna talkabout that number, then you're
gonna have to carry that note.
It's gonna have to besubordinate and, you know, we'll
see.
Ken Lucci (39:45):
Right.
Subordinate, meaning the SBA hasto be paid off first and your,
the seller note is behind theSBA.
Natalie Beane (39:55):
Yep.
Ken Lucci (39:56):
Okay.
I mean, and, and the funny thingis where I never, there's few
things when I get into this.
I got into this on a whim.
I did this part-time, 2018.
I sold my limo company in 15, Ithink I told you that, or 12.
And I got my final payment in15.
I never imagined it was gonnajust explode the way it has.
Few things that have beenshocking to me, or surprise
(40:18):
number one, the number ofcompanies that operate without
financial reporting on a monthlybasis.
That has truly been a shock.
I come from a background and Itold you where my dad was in
business and he used to so longago.
He, he used to teach me,remember the accounting green
sheets?
The accounting green sheets thatwere literally the ledger sheets
(40:41):
that it's manual Excel reports,
Natalie Beane (40:45):
Mm-hmm.
Ken Lucci (40:45):
right?
And he would show me the greensheets and we go into the store
every Sunday and he would showme, okay, this is how Dry goods
did, this is how produce did.
And Ken, here's the profit thatwe made at the end of the month.
It's amazing to me how businessowners don't.
Have monthly financialreporting?
Is it just my industry?
(41:07):
Do you see
Natalie Beane (41:07):
No, no, I see the same thing.
And I think sort of re relatedto that, if you're not looking
at monthly financials, then howcan you tell when you take on a
big new client at what I see sofrequently is the thing that's
putting a business under stressis they took on the dream
(41:28):
client, but it's not profitable
Ken Lucci (41:30):
With 90 day terms and low
Natalie Beane (41:32):
Yes, yes.
90 day terms if they want, youknow, where there's not really
any recourse.
And if you're not gettingregular financial statements and
looking at that dry goods levelto your father's, you know, uh,
example then how do you know ifa given customer or route or
whatever is going is going toactually do your business?
(41:54):
Good.
Top line revenue for the sake oftop line revenue.
that could be a ticket tokilling your business or putting
it under extreme
Ken Lucci (42:01):
wait a minute, John, you better have grabbed that
because that was the snippetwe're gonna use.
Um, because so many, uh, so manypeople, it's, it's like the
restaurateur who on a Fridaynight laments, he looks and says
every table is full.
And I've got a waiting list ofpeople.
Then on Monday he can't pay forthe food'cause he doesn't have
(42:24):
he, he has to pay his payroll,he has to pay his rent.
He has to pay his insurance.
He doesn't understand thatthat's not a measure of success
or how many meals come out ofthat kitchen is not a measure of
success.
when we work with operators on aretained basis, or we do their
monthly financial reporting,first thing they said to me is,
(42:46):
well, wait a minute.
My, I guess my accountant doesthat.
Okay, well, your accountantmight do it, but you're
obviously not looking at it.
And if you are, you're justlooking at the bottom line,
which is good, but.
Monthly financial reporting.
Ideally, you want to pull outwhat you just talked about.
You want to pull out keyfinancial metrics by revenue
(43:08):
silo, by, you know, looking atyour cost of goods.
You may just have go signed afantastic client that does
airport transfers with you 50 aweek, but they've demanded you
match the pricing of someone whojust didn't know.
How to price things and it's,it's putting stress on your
(43:28):
business.
Segue into cash flow.
Talk about how free cash flowand cash liquidity is something
that, that you look at when weshould be looking at, when we're
examined buying a business.
Natalie Beane (43:42):
Well, it's a great example and a great point.
I think if, if you take on acustomer that demands margin de
demands pricing that.
To, to match someone else who'snot making good choices.
Your margins end up being sothin that you're having to
invest a lot more upfront tomake less.
And not only that, there'sopportunity cost of that.
(44:03):
So in the time you aredelegating resources to earn
those tiny margins, you areforegoing, smaller, maybe less
glamorous clients or prospectiveclients who would afford you.
Better margins.
And at the end of the day whenwe are looking at, hey, can this
business afford to expand andpay for another business?
(44:25):
If you don't have any leftovercash flow after you pay the
overhead to service thecustomers that you have, even if
you're looking at a profitablebusiness, we're gonna look at
that and think this is not agood indicator that you're going
to be able to manage to healthyprofit margins.
It doesn't inspire confidencewhen we are evaluating whether
(44:46):
or not a given operator shouldbe approved for an expansion.
But also it's, it's like to yourother example about buying, you
know, investing in other$500,000, in a new piece of
equipment, it's if you can'tshow us how that will affect the
bottom line in a positive way,That's not really gonna make a
good case for us giving you aloan to make that acquisition.
(45:07):
So just because you can bring ina really big client that would
give you 95% utilization of anew piece of equipment.
If you can't also show me thatafter you pay for the debt,
after you pay for the all of thecosts of, you know, doing the
business.
If you guys show me there'sleftover money there.
Then that is not going to be arecipe before approval or
(45:29):
success for the business in, inmy view.
Um.
Ken Lucci (45:32):
Yeah, to a hundred percent.
And we, we actually, we actuallyhave several use cases where we
worked with clients who wantedto sell their businesses.
And their primary reason forselling it is'cause they're not
making any money, right?
So they, they have a businesspartner and they want to be
bought out.
And when we look at thebusiness, to your point, we are
seeing, oh, I have all thesecontracts, these shuttle
(45:54):
contracts.
Well, first of all, there's alittle bit of a misnomer there
because it's a, it's basicallythey can fire you anytime.
What you have is a piece ofpaper.
You don't have a legally bindingcontract where the person has to
pay you for a di for a term,right?
You have a pricing term sheet.
So we actually have a couple ofsituations where.
(46:16):
They have had municipalcontracts and they've said, this
business is worth money becauseI have these municipal
contracts.
When we've done the analysis andwe've said, all right, here's
the revenue that contract bringsin.
This is the equipment that'sdedicated to it, doesn't do
anything else but that municipalcontract.
Here's the insurance, here's thedriver, here's the fuel.
Here's all of these things.
(46:36):
Wear and tear, repair,maintenance, et cetera, and
depreciation of the equipment.
You're making 18% gross margin.
You might as well leave thatpiece of equipment in the
garage.
Because all you need to happenis somebody sideswipes a poll
and now you've totally lostmoney.
So the misnomer that all revenueis good revenue, you know, you
(46:57):
have to know what yourdefinition of good business is.
and again, you know, when wetalk about buying a company, one
of the key indicators is whatdoes their pricing look like
compared to yours?
If you've identified that youare running a profitable
business.
You just want to take acompetitor out.
In certain cases, if theirprices are that low, all you
(47:17):
have to do is sit and waitbecause at some point they're
gonna go.
you shouldn't take on anotherbusiness with low margins to
expand your revenue because itcould kill the host, it could
kill the host.
how important in yourestimation.
is the human capital of thebusiness.
(47:38):
If I'm gonna try to, uh, expandthrough acquisition, how
important is it to you to seethat the team.
Of the host company is, has gotgreat experience besides the
owner, right?
Because the owner, frankly, Ialways say this, you're, you are
one heartbeat away from that,from that loan defaulting,
right?
Because you do everything in thebusiness.
(47:59):
So talk about that.
Talk about the team and what weshould be preparing a buyer for
and, and demonstrating thatthey've got a good team.
Natalie Beane (48:10):
Great question.
I think we look at, we'll lookat both the host and the target
to say, alright, number one, isthere a good team?
What's the longevity?
So it doesn't mean people needto have been there for a long
time, but that's usually a goodsignifier.
Um.
So we, we wanna know thebackground and experience of
the, of the folks at the host,but also what does the target
(48:31):
look like and what is thecombined entity going to look
like?
Um, related to that, we alsowant to know about the systems
in place, especially for thetarget.
Um, do the folks.
Are there systems in place or isevery position one heartbeat
away from a problem?
You know, it's like if you don'thave systems, even if you have
(48:52):
the world's best employees ineach different role, if you
don't have good systems, if youdon't have, if necessary, a good
recruiting, uh, program or plan,then it doesn't really matter.
Even if you have great if, ifyou have all the greatest
people.
So we kind of look at the humancapital piece along with the
systems and.
(49:13):
Um, try to make sure that ourbuyers understand how it's gonna
look post acquisition.
And I think this is something Isee a lot of people, you know,
sellers will say, well, I'm nottelling anyone we're selling so
nobody can know, so I can't, Iwon't tell you.
And they don't want to discloseinformation about their
staffing.
and while I can understand someof those fears, it's like, how
(49:34):
can a buyer really make informeddecisions or do an informed
analysis about how theirexisting team.
Is going to be capable ofsupporting the addition of
what's coming or not, you know,depending on what people are
coming with.
So I think that's key as well.
Ken Lucci (49:51):
And, and you know, part of that is also having a
decent advisor, um, that can saythis is information that
absolutely is, is needed to getto the point of a letter of
intent.
And then we have to do fulldisclosure during due diligence.
Talk to me about one, aboutowner consideration.
(50:12):
You know, we deal all the timewith small businesses, I'm sure
you do, where the owner doesn'ttake a W2, they take a year-end
distribution, and that year-enddistribution is a balance sheet
item.
It never hits the p and l.
So how important when someone isselling a business.
To be able to demonstrate thatthey've taken a really, really
good salary and they've taken,they're doing a great job.
(50:35):
They're, they're seven, they'rein the business, but they're
taking out demonstrably morethan their replacement labor
would be.
How important is, is W2 incomeand consistent income come?
Natalie Beane (50:48):
It depends if it's clear to explain, if it's
logical and makes sense, and youcan show me what you were doing
and you have a credible plan forhow it will be done, which goes
in some part to the buyer aswell.
Um.
Then it's not that important.
It certainly simplifies thingsif it's really straightforward
(51:08):
and you've been taking W2 andyou're just replacing one with
another.
but as, as long as the story andthe documents and the numbers
all match, that's the problem.
We frequently have the story andthe numbers don't match.
And it it, you know, for folkswho don't look at their
financial statements, they'relike, who cares?
I'm making all this money.
But for us, we're like, I hearwhat you're saying.
(51:29):
And when I look at the financialstatement, what I see is.
Fill in the blank.
Help me understand this.
what am I missing?
How is this working?
And
Ken Lucci (51:37):
We, we call those, we call those financials, Prego
Financials.
Oh, don't worry.
It's in there.
It's in there.
Okay.
Where is your compensationexactly?
Oh, wait a minute.
Your wife gets paid.
Where is her compensation?
Natalie Beane (51:52):
Like which line item?
Where would point it out?
Ken Lucci (51:55):
Right, Point it out.
It, it is like nobody is goingto approve a loan because you
say this is what you've beendoing.
listen, I could literally talkthe subject with you and, and to
you specifically.
I could talk to you about thisfor a couple of hours, but tell
me, tell us how, um, if someonewas serious about looking into
(52:17):
an SBA loan, tell us about theprocess with provider and how
they find you.
Natalie Beane (52:22):
Sure.
Um.
I'm on LinkedIn, uh, I'm, I'measy to find.
I'm Natalie Bean.
but the process with provide isreally pretty straightforward.
Um.
Everything starts with aconversation for me.
I just like to talk to humanpeople.
We do have a really slick sortof application portal, which
lets us pre-qualify individualbuyers in five minutes or less.
(52:45):
and then a really sort of easyupload thing, but it's really a
three phase process.
There's pre-qualifying, that'severything from making sure
you're sort of generallybankable to me, analyzing the
financial information, comingback to you and saying, Hey,
here are some terms.
That I'm comfortable sending tounderwriting.
This is what the rate will looklike.
Uh, that's part one.
Part two is formal underwriting.
The end of that is a decision.
(53:05):
There's your commitment letter.
That's where you sign something,make a deposit.
And then part three is all thedue diligence that we need to
do.
It's ordering reports.
It's getting into formationdocuments, getting all the sort
of i's dotted t's cross at theend of that we fund.
so for us it's like a lot oftechnology to try to smooth it
out and address some of thatonerous, Stuff that SBA gets a
(53:26):
bad reputation about, but it'sleaning into that technology to
make sure there's a human personavailable to talk to you.
So I, I work with a partner andthe two of us are available all
the time talking to people,answering questions, and trying
to remove obstacles ahead oftime so that they don't derail
the process so that they don'tslow things down.
Ken Lucci (53:44):
All right, so we can find Natalie Bean from Provide
on LinkedIn
Natalie Beane (53:48):
Yep, yep.
Ken Lucci (53:49):
give out the website?
Natalie Beane (53:51):
Uh, yeah, for sure.
It's get provide.com.
Ken Lucci (53:54):
But always ask for Natalie Bean.
Always.
Natalie Beane (53:57):
always,
Ken Lucci (53:58):
And, and I will tell you, I will attest to how
accessible you are becauseagain, I've reached out to banks
and and said, listen, you know,we've reviewed 280 of these
companies.
We do work with banks now, andwe just want to blaze the trail
and kind of pre pave the trail alittle bit for some of these
transactions, and I can'tbelieve how even small lenders
(54:20):
are so difficult to deal with,and I was so happy to find you.
Um, and, and you make theprocess, you really explain the
process.
And I will say the SBA.
I don't find the process anymore difficult than a typical
commercial lender.
I, I just a regular commerciallender.
I just don't, and I like, I likethe SBA loans because for the
(54:43):
bank, it, it does share yourrisk with the government.
The government.
It's this program is thegovernment investing in the
small business engine ofAmerica.
So I like it.
Natalie Beane (54:56):
Yep, me too.
I love it.
15 years in.
I love it.
Ken Lucci (54:59):
Well, you, you've seriously made, you've been very
successful at it, so Iappreciate your time.
Natalie Beam from Provi provide,again, it's get provide.com, but
find her on LinkedIn.
And everybody, thank you verymuch for listening to another
exciting episode.
We hope you get some value outof it Thanks a lot and have a
great day.
(55:20):
Thank you for listening to theground transportation podcast.
If you enjoyed this episode,please remember to subscribe to
the show on apple, Spotify,YouTube, or wherever you get
your podcasts.
For more information about PAXtraining and to contact James,
go to PAX training.com.
And for more information aboutdriving transactions and to
contact Ken, Go to drivingtransactions.com.
(55:44):
We'll see you next time on theground transportation podcast.
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